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The Ministry of Corporate Affairs had vide Gazette Notification in 2021 amended the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021. This amendment has brought in several significant changes with respect to CSR spending of a company from the year 2021.

     I.  Rule 2: – 

This covers the definition of “Corporate Social Responsibility” and List of Activities not covered under CSR. CSR means activity undertaken by the Company under the Section 135 read with these rules, but shall not include the following:

a) Activities undertaken in pursuance of normal course of business of the company. However, company engaged in research & development activity of new vaccine drugs and medical devices related to COVID 19 for financial year 20-21, 21-22, and 22-23 exempted subject to certain conditions.

b) Any activity undertaken by the company outside India except for training of Indian sports personnel representing any State or Union Territory at national level or India at International level.

c) Contribution of any amount directly or indirectly to any political party under section 182 of the Act.

d) Activities benefitting employees of the company as defined in section 2(k) of the Code on Wages, 2019 (29 of 2019).

e) Activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services.

f) Activities carried out for fulfilment of any other statutory obligations under any law in force in India

Rule 2(b) – Added – Administration Over Head: -

Administrative overheads mean expenses incurred by the company for general management and administration of Corporate Social Responsibility functions in the company. However, it will not include the expenses directly incurred for the designing, implementation, monitoring and evaluation of a particular Corporate Social Responsibility project or programme; the administration over head shall not exceed 5% of the total CSR Expenditure of the Company for the financial year.

  II. Rule 4: – CSR Implementation

As per Rule 4(2) – Every entity who is covered under Rule (4) (1), who intends to undertake any CSR activity shall register itself with the Central Government by filling the form CSR – 1 electronically with the Registrar, with effect from 01st April 2021. On submission of the form CSR-1 on the portal, a unique CSR registration number shall be generated by the system automatically.

The Board of a company shall satisfy itself that the funds so disbursed have been utilised for the purposes and in the manner as approved by it and the CFO or the person responsible for financial management shall certify the effect.

In case of “ongoing project” the board of a company shall monitor the implementation of the project with reference to the approved timelines and year wise allocation and shall be competent to make modifications, if any for smooth implementation.

Rule 2(1)(i) of Amendment Rules defines the term “Ongoing Project”

An ongoing project means a multi-year project that a company undertakes to fulfil its CSR obligation within three years, excluding the financial year it was commenced. It will also include projects that were initially not approved as multi-year projects but whose duration is extended beyond one year by the board based on reasonable justification. 

 III. Rule 5: –

Under the Rule 5 clause (2), the CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include:

           1. The list of projects, programmes that are approved and undertaken as per Schedule VII of the Act.

           2. The manner of execution

           3. The modalities of utilization of funds and implementation schedules

           4. Monitoring and reporting mechanism

           5. Details of need and impact assessment, if any

 IV. Rule 7: – CSR Expenditure Amendments

The Board of a company must ensure that the administrative overheads will not exceed 5% of the company’s total CSR expenditure for the respective financial year. The surplus arising out of the CSR activities will not form part of the business profit of a company and shall be transferred to the Unspent CSR Account or ploughed back into the same project.

The company should spend the unspent CSR amount in pursuance of the annual action plan, the CSR policy of the company or transferred to a Fund specified in Schedule VII within six months of the expiry of the financial year.

Where a company spends an amount above the requirement provided under Section 135(5) of the Act, the company can set off such excess amount up to the immediate succeeding three financial years. However, the excess amount available for set-off should not include the surplus arising out of the CSR activities in pursuance of these Rules, and the Board should pass a resolution to that effect.

A company can spend the CSR amount for the acquisition or creation of a capital asset held by 

  • Companies that are established under section 8 of the Act, or a Registered Society or Registered Public Trust having charitable objects and CSR Registration Number 
  • Beneficiaries of the CSR project, in the form of collectives, self-help groups, entities
  • Public authority

   V. Rule 8: – CSR Reporting Amendments

The Board report covered under the Rules relating to any financial year should include an annual report on CSR having the particulars specified in Annexure I or Annexure II, as applicable.

In the case of a foreign company, the balance sheet filed under section 381(1)(b) of the Act should contain an annual report on CSR containing particulars specified in Annexure I or Annexure II, as applicable.

Every company with an average CSR obligation of Rs.10 crore or more should undertake impact assessment through an independent agency for the CSR projects with outlays of Rs.1 crore or more and completed within one year of undertaking the impact study. 

The impact assessment reports should be placed before the Board and annexed to the annual report on CSR. A company undertaking impact assessment can book the expenditure towards CSR for that financial year, which should not exceed 5% of the total CSR expenditure for that respective financial year or Rs.50 lakh, whichever is less.

 VI. Rule 9: – Display of CSR activities on Websites

The Board of Directors should mandatorily disclose the CSR Policy and Projects approved by the Board and composition of the CSR Committee on their website, if any, for public access. 

VII. Rule 10: – Amendment in Transfer of Unspent CSR Amount

The unspent CSR amount, if any, should be transferred by the company to any fund included in schedule VII of the Act until a fund is specified in Schedule VII in pursuance of Section 135(5) and Section 135(6) of the Act.

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